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Using survey data to resolve the exchange risk exposure puzzle: Evidence from U.S. multinational firms

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  • Jongen, R.
  • Muller, A.
  • Verschoor, W.F.C.

Abstract

This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of ‘realized’ and ‘unexpected’ currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 2 ()
Pages: 148-169

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:2:p:148-169

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Exchange risk exposure; Survey-based expectations; Heterogeneity; U.S. multinational firms;

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References

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Citations

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Cited by:
  1. Chen, Shieh-Liang & Liang, Hao-An, 2014. "Cause mapping of simple and complex marketing strategies," Journal of Business Research, Elsevier, vol. 67(1), pages 2867-2876.
  2. ter Ellen, Saskia & Verschoor, Willem F.C. & Zwinkels, Remco C.J., 2013. "Dynamic expectation formation in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 75-97.
  3. Uluc Aysun & Melanie Guldi, 2009. "Exchange rate exposure: A nonparametric approach," Working papers 2009-18, University of Connecticut, Department of Economics.
  4. Parlapiano, Fabio & Alexeev, Vitali, 2012. "Exchange Rate Risk Exposure and the Value of European Firms," Working Papers 2012-09, University of Tasmania, School of Economics and Finance, revised 20 Nov 2012.

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